Crowd Funding

On April 5, President Obama signed the Jumpstart Our Business Startups Act (the “JOBS Act”) into law. The stated goal of the JOBS Act is to promote job growth by easing the capital raising process for small and mid-sized companies. Many of the reforms included in this bill aim to reduce the regulatory burdens and cost of raising capital associated with previous public and private offering rules.

The JOBS Act includes provisions that:

  • Eliminate the prohibition on general solicitation related to private offerings
  • Raise the Regulation A offering threshold from $5 million to $50 million
  • Raise the shareholder threshold requiring mandatory SEC registration from 500 holders of record to 2,000 holders of record (as long as less than 500 of those holders fail to qualify as accredited investors)
  • Create a “crowdfunding” exemption, allowing companies to raise up to $1 million over 12 months from an unlimited number of investors, each limited to an investment of $10,000 or 10% of their annual income or net worth, whichever is less
  • Reduce the cost and regulatory burden of going public for “Emerging Growth Companies,” defined as companies with less than $1 billion in annual revenue, by providing an exemption from periodic SEC filing requirements, most notably compliance with Sarbanes-Oxley rules
  • Increase flexibility for broker-dealers to issue research reports on emerging growth companies

The JOBS Act, particularly the provisions regarding Regulation A, ending the ban on general solicitation, and allowing crowdfunding, is expected to increase the number of shares trading in the OTC market. As the primary platform for the trading of OTC securities, OTC Markets Group’s OTC Link® platform will facilitate trading and provide a vibrant secondary market for these shares.

For more information, please read the Official White House Release and The JOBS Act. Please contact us anytime with questions.

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